In re Optinrealbig.Com, LLC

• Decision Date: 04 April 2006
• Docket Number: No. 05-16340 HRT.,No. 05-16304 HRT.,05-16304 HRT.,05-16340 HRT.
• Citation: 345 B.R. 277
• Parties: In re OPTINREALBIG.COM, LLC, Debtor. In re Scott Allen Richter, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

345 B.R. 277

In re OPTINREALBIG.COM, LLC, Debtor.

In re Scott Allen Richter, Debtor.

No. 05-16304 HRT.

No. 05-16340 HRT.

United States Bankruptcy Court, D. Colorado.

April 4, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

John C. Smiley and Harold G. Morris, Jr., Lindquist & Vennum, P.L.L.P., for OptinRealBig.com, LLC.

Harvey Sender and Bonnie Bell Bond, Sender & Wasserman, P.C., for Scott Allen Richter.

D. Bruce Coles, Fish & Coles, for Infinite Monkeys & Co., LLC.

ORDER DISMISSING CHAPTER 11 CASES

HOWARD R. TALLMAN, Bankruptcy Judge.

This case comes before the Court on the Joint Motion of Debtors, OptinRealBig. com, LLC, and Scott Allen Richter, to Dismiss Case for Good Cause (docket # 223) [the "Motion"].

The Court held a hearing in this matter on November 21, 2005. It has considered the evidence presented and the statements of counsel; the Court has reviewed the pleadings in this matter, including the Motion; Objection to Debtor's Joint Motion to Dismiss Cases (docket # 250); Reply in Support of Disclosure of Settlement Agreements (docket # 277); Debtors' Memorandum Brief in Support of Motion to Dismiss Cases for Good Cause (docket # 314); Hearing Brief of Infinite Monkeys in Opposition to Joint Motion to Dismiss Bankruptcy Cases (docket # 323). In addition, the Court has reviewed its file and, being informed in the matter, the Court is ready to make its ruling.

I. BACKGROUND

These cases were filed on March 25, 2005. OptInRealBig.com ["OptIn"] is a corporation which provides e-mail advertising services. Scott Allen Richter ["Richter"] is the 40% shareholder of the company. Richter indirectly owns the remaining 60% of the company through other entities he controls. The OptIn and Richter cases are being jointly administered pursuant to the Court's order of April 13, 2005, approving the Debtors' motion requesting joint administration.

The Debtors have operated as debtors-in-possession in these chapter 11 cases since the petition date. At the time the bankruptcy cases were filed, OptIn and Richter were embroiled in litigation with Microsoft Corporation ["Microsoft"] and also in litigation with American Family Mutual Insurance Company ["American Family"] concerning coverage issues related to the Microsoft litigation. Microsoft was asserting a claim against the Debtors in the amount of approximately $57 million for alleged violations of a Washington state law relating to e-mail advertising. At the same time, OptIn and Richter were parties to somewhat less significant litigation in various jurisdictions around the country. It was the Debtors' hope that these pieces of litigation could all be dealt with in a single forum under the auspices of this Bankruptcy Court.

In July of 2005, the Court granted a motion to stay certain proceedings in order to allow Microsoft and the Debtors to explore settlement options through alternative dispute resolution. The parties were successful in settling a number of related matters, including: 1) the litigation with Microsoft; 2) Microsoft's adversary case against Richter for denial of discharge; 3) a relief from stay motion filed by Microsoft; 4) a motion to dismiss on grounds of bad faith; and 5) the determination of coverage and potential for reimbursement of fees and costs associated with the Debtors' dispute with American Family. Shortly after reaching these settlements, the Debtors filed this Motion to dismiss their bankruptcy cases. Consummation of the settlements is contingent upon the dismissal.

Scott Richter was the only witness at the November 21, 2005, hearing on this Motion. Richter testified that the Debtors have seen a 20% increase in their business since the settlements with Microsoft and American Family were announced. He estimated that total revenues for the year 2005 would be approximately $60 million.

II. DISCUSSION

A. Infinite Monkeys Lacks Standing to Object to Dismissal of Richter's Case

As an initial matter, the Court notes that Infinite Monkeys is the only party that is prosecuting an objection to the dismissal of these cases. It is an interested party in the case of OptInRealBig.com because it filed a proof of claim in that case. The bar date for filing proofs of claim in Richter's case was set for July 29, 2005, and Infinite Monkeys filed no proof of claim in that case. Consequently, it is not an interested party in the case of Scott Allen Richter.

A party in interest "`is generally understood to include all persons whose pecuniary interests are, directly affected by the bankruptcy proceedings.'" Nintendo Co. Ltd. v. Patten (In re Alpex Computer Corp.), 71 F.3d 353, 356 (10th Cir.1995) (quoting Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 756 (4th Cir.1993)); Armstrong v. Rushton (In re Armstrong), 303 B.R. 213, 219 (10th Cir. BAP 2004). Having the status of a creditor who has filed a proof of claim in a proceeding is not a necessary condition precedent to being considered a party in interest. In re Armstrong, 303 B.R. at 219. But, in this case, without Infinite Monkeys having filed a proof of claim in Richter's case, it does not appear that it has any economic stake in the outcome of the case.

As a consequence, no proper party in interest has objected to the dismissal of Scott Allen Richter's case. On that basis alone, the Court would dismiss Case No. 05-16340, filed by Scott Allen Richter. However, the following discussion applies equally to his case as it does to the OptInRealBig.com case.

B. Dismissal or Conversion Under 11 U.S.C. § 1112

The conversion or dismissal of a Chapter 11 bankruptcy proceeding is controlled by 11 U.S.C. § 1112. That section was significantly amended by the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ["BAPCPA"]. The amendments to § 1112 became effective on October 17, 2005. Since these cases were filed on March 25, 2005, prior to the effective date of the amendments, the pre-BAPCPA version of § 1112 applies to the Court's determination in this case.

Section 1112(b) addresses dismissal of a chapter 11 case and reads as follows:

(b) Except as provided in subsection (c) of this section, on request of a party in interest or the United States trustee or bankruptcy administrator, and after notice and a hearing, the court may convert a case under this chapter to a case under chapter 7 of this title or may dismiss a case under this chapter, whichever is in the best interest of creditors and the estate, for cause, including —

(1) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation;

(2) inability to effectuate a plan;

(3) unreasonable delay by the debtor that is prejudicial to creditors;

(4) failure to propose a plan under section 1121 of this title within any time fixed by the court;

(5) denial of confirmation of every proposed plan and denial of a request made for additional time for filing another plan or a modification of a plan;

(6) revocation of an order of confirmation under section 1144 of this title, and denial of confirmation of another plan or a modified plan under section 1129 of this title;

(7) inability to effectuate substantial consummation of a confirmed plan;

(8) material default by the debtor with respect to a confirmed plan;

(9) termination of a plan by reason of the occurrence of a condition specified in the plan; or

(10) nonpayment of any fees or charges required under chapter 123 of title 28.

11 U.S.C. § 1112(b)(emphasis added).

Dismissal or conversion of a chapter 11 case under 11 U.S.C. § 1112(b) is a two step process. First, the Court must determine if "cause" exists for dismissal or conversion of the chapter 11 case. Next, the Court must determine whether dismissal or conversion of the case is in the best interest of creditors and the estate. Rollex Corp. v. Associated Materials, Inc. (In re Superior Siding & Window, Inc.), 14 F.3d 240, 242 (4th Cir.1994) ("A motion filed under this section invokes a two-step analysis, first to determine whether `cause' exists either to dismiss or to convert the Chapter 11 proceeding to a Chapter 7 proceeding, and second to determine which option is in the best interest of creditors and the estate.'") (quoting In re Mechanical Maintenance, Inc., 128 B.R. 382, 386 (E.D.Pa.1991)).

C. The Debtors' are Proper Parties to Make a Motion Under § 1112(b)

The initial question is whether the Debtors are proper parties to move for dismissal under § 1112(b). The examples of cause which appear in § 1112(b) center upon those situations where a debtor is incapable of reorganizing or the process of reorganization has been unacceptably delayed by a debtor's lack of action. They are the types of cause that are most likely to be raised by a creditor or the U.S Trustee. Nonetheless, § 1112(b) permits a motion to dismiss to be made by any party in interest. The Debtors are, indisputably, parties in interest in their own cases. Even though the examples of cause recited in § 1112(b) are not the type of allegations likely to be raised by a debtor as cause for dismissal of its own case, they are only examples and the Court is not restricted to looking only to § 1112(b)(1) through (10) to find cause for dismissal of these cases. Because the Debtors are clearly parties in interest, they are permitted to make a dismissal motion as they have done here.

D. Cause for Dismissal or Conversion Exists

The cause claimed by the Debtors in their Motion is that they have reached a settlement with Microsoft, their primary litigation nemesis. The question for this Court is whether that is a circumstance that constitutes cause for conversion or dismissal under § 1112(b). The Court finds that cause has been shown in this case.

The law favors consensual settlement of disputes. The 10th Circuit Court of Appeals has said that "[t]he inveterate policy of the law is to encourage, promote, and sustain the compromise and settlement of disputed claims."...